Credit Card Settlement Causes Concerns

Visa and MasterCard may have won a major victory in the settlement of a class-action suit alleging that the credit card giants had been fixing prices by manipulating credit card swipe fees, but the results have raised concerns among merchants and some financial institutions.

The suit against Visa, based in Foster City, Calif., and MasterCard, based in Purchase, N.Y., worth $7.25 billion in July 2013 was settled on Friday for $5.7 billion in a Brooklyn, N.Y., federal court. The reduction in damages in August was due to some 8,000 merchants dropping out of the class action suit.

Despite some relief over the end of the seven-year suit, retailers have expressed concern that factors within U.S. District Judge John Gleeson’s decision could lead to future problems of the same nature. The National Retail Federation already has said that it will appeal the decision, noting that swipe fees cost merchants and consumers $30 billion per year and have tripled over the past decade.

“We are very disappointed that this deeply flawed settlement has been approved,” said Mallory Duncan, the federation’s general counsel. “It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future.”

Credit unions are not parties to the settlement, but will be affected by its terms when and if the final settlement takes effect, according to Mary Dunn, deputy general counsel for CUNA. The settlement calls for a temporary reduction in interchange fees, which likely would result in a reduction in credit card fee income for credit unions.

“We were initially hopeful that the settlement would resolve disputes between merchants and MasterCard and Visa relating to fees the merchants are charged for credit card transactions and how those fees are set,” said Dunn. “But these issues may be unresolved for quite some time as the NRF and individual retailers, including some of the biggest, have already filed a notices of appeal.”

NAFCU, too, has expressed its concern over the settlement, citing the need for greater consumer savings, which had been promised, and promising to watch closely for any negative impacts on credit unions and their members.

“NAFCU will work to ensure that there is no card discrimination based on the issuing institution,” said Carrie Hunt, that trade group’s general counsel. “We’ll also watch for any chilling effect the new powers granted to merchants may have on credit cards in general.”